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The Goldman "Abacus Mortgage" Affair:
Clues to its Causes from the Parties' Styles of Language

(c) 2010-13 by
Angus Cunningham
Principal, Authentix Coaches
Following is a substantial extract, with comments by the author, from a report by Louise Story on the
Goldman Sachs' "
Abacus mortgage affair".  It appeared in the New York Times on 100719.
In his reply on Monday, Mr. Tourré, who is a vice president at Goldman, said the S.E.C. had failed to
show a material omission of information in the marketing materials. He also said the commission had
used pieces of evidence that were “
improperly vague, ambiguous and confusing, and omitted critical facts.”

The filing also said Mr. Tourré and Goldman Sachs did not have a duty to notify investors of details
that the S.E.C. said they should have disclosed: that a hedge fund manager who was betting against
the housing market was helping to design the mortgage security in question.  Mr. Tourré also said the
S.E.C. did not show that he acted with the intention of defrauding investors.

Mr. Tourré’s lawyer, Pamela Chepiga of Allen & Overy, did not return calls seeking comment.
Goldman Sachs is paying his legal fees.
Hmmm.  Betting both sides of the fence, or doing due diligence?  Goldman's response to the SEC's
request for information was a dump of a huge amount of electronic data.
The legal filing is not the first public response from Mr. Tourré.  In April, 11 days after the S.E.C.
brought its case, Mr. Tourré and several other Goldman employees testified before a Senate

There, he and others defended their actions.  But Mr. Tourré did acknowledge that he should have
disclosed more information about the design of the mortgage security, called Abacus 2007-AC1.
"Should have", eh?  By whose standards?
One of the standards evidently was that of the firm: Goldman Sachs.
A native of France (like Jérôme Kerviel of SocGen infamy), Mr. Tourré has worked at Goldman Sachs
since 2001, when he joined after completing his master’s degree in operations at Stanford University.

He hit success at Goldman quickly, in part because he landed on the mortgage trading desk and
became involved with a series of deals called
"Abacus" seems to have been the label for a particular strategy for packaging/marketing mortgage
deals arranged by Goldman since as long ago, possibly, as 2001.
Last week, Goldman also acknowledged as much in its settlement with the S.E.C.  The bank said its
marketing for the Abacus deal contained “
incomplete information” and that Goldman had made “a
” in not informing investors that a prominent hedge fund manager helped design the deal.  That
hedge fund manager, John Paulson, had a negative view of the mortgage market; therefore investors
with a positive view of the market may have wanted to know about his role.  The Goldman settlement
must still be approved by a judge.  Mr. Tourre is now left alone to defend himself.
The deals helped Goldman and some hedge fund managers bet that the mortgage market would hit
trouble and then profit when it did.  As Andrew Allentuck of the National Post put it in a review of
Suzanne McGee's 2010 book "
Chasing Goldman Sachs": When investment bankers can -- as Goldman did
-- short the derivatives it sold to clients to boost its own profits, then withdraw from markets it
promoted, the system is broken.
Is that the kind of firm you'd like to do business with?
The S.E.C.’s settlement with Goldman included only one Abacus deal, though Goldman said in a
statement that it understood that the commission had reviewed several others and did not plan to file

The S.E.C. said last week that it continued to investigate any wrongdoing in old mortgage security
deals issued by Goldman and other banks.  On Monday, spokesmen for the S.E.C. and Goldman
declined to comment on Mr. Tourré’s filing.  Though Mr. Tourré was only one of seven Goldman
traders and executives to testify before the Senate in April, he was clearly the subject of the most
interest.  When a lawmaker asked Mr. Tourré if he regretted his actions with
Abacus and other deals,
he said he was “
sad and humbled about what happened in the market.
He was "sad and humbled" in April.  But his mood seems accusatory of the SEC today (written on
100720).  Who then IS Fabrice Touré?
Beyond the S.E.C. complaint, Goldman helped fan the interest in Mr. Tourré by releasing a batch of
old e-mail messages that Mr. Tourré sent to friends as he marketed Abacus deals to investors
threeyears ago.  Mr. Tourré referred to himself as “the fabulous Fab” ...
Was he telling himself "I am Fabrice Tourré, the famed maker of fables, I am"?

Just suppose he had been in the habit of expressing his emotions in the linguistic format of "I have 'X
emotion' now" (IHXEN) statements, a format in which one takes responsibility for one's emotions.  
This is the sort of responsibility that one would expect a Vice-President of a firm adhering to healthy
ethics would be in the habit of taking.  Would he be thinking today that he is the same human being
he was in April, a little bigger in personality but with same integrity of character?  Would he, in short,
have the integrity to be consistent?
... and asserted at one point on a trip to Belgium that he had “managed to sell a few Abacus bonds to
widows and orphans that I ran into at the airport

The messages also showed that Mr. Tourré was aware that the mortgage market was troubled, even as
he marketed the mortgage securities. He compared a security to Frankenstein in one e-mail message
because it was turning bad so fast.

“I’m trading a product which a month ago was worth $100 and which today is only worth $93 and
which on average is losing 25 cents a day,” he wrote.
Tourré's self-concept, as revealed by his "I am" statements, appears to be: I AM the fabulous Fab, the trader
who can sell loss-making contracts to widows and orphans, be humbled and sad one day, and accusatory three
months later, I AM.

Who hires such a person?  Who trains such people?  Who gives them paid leaves of absence?  Who pays their
legal bills?  And most important, why?  Is that the kind of firm we want to be the inventor of innovative financial
products at the centre of the great trading nation known variously as the "United States of America", "the US",
"Uncle Sam", "the Great Satan", "the leader of the West"?

The Chairperson of the SEC is Mary Schapiro. The budget she controls is little more than a billion dollars a year,
less than Goldman Sachs is currently earning in a two weeks.

Does the SEC know about

In a sequel to this story aired by CNBC on 100804, Goldman decided its first move to comply with the U.S.
financial reform package (Dodd-Frank) signed into law last month would be to spin off its proprietary trading
arm "
as early as this month", according to its spokeperson David Duvally.  "As we've said all along, we are
considering our options.  When we have something to announce, we'll announce it.  Of course anything we do
will comply with the law.

Gee!  We're glad to know the law is something you "of course" comply with, Goldman Gang!  The other major
banks have been announcing such moves rather more quickly than Goldman.  Yet this announcement from
Goldman comes just a few weeks after its chief financial officer said the impact of the new law would "be
difficult to predict".  Does that sound disingenuous to anyone?

Do Goldman people know about
IHXENs?  What's expected in terms of integrity?  The issues go deep -- to the
core of what's meant by honesty in business.  Here's a New York Times
video if you want a fast introduction.  
And here's a comment on Goldman by William. D. Cohan, author of “
House of Cards: A Tale of Hubris and
Wretched Excess on Wall Street
”, formerly an investigative reporter and for 15 years a mergers-and-acquisitions
banker on Wall Street, in relation to
Goldman's buy-in to Facebook.

On August 1, 2013, Fabrice Tourré was found guilty of six of the seven charges brought against him by the SEC.  
He is the only employee of Goldman Sachs to have a verdict pronounced on him in court.  The SEC charged, in
connection with Abacus mortgages, a handful of other Goldman employees, most of whose cases were settled
out of court.  For the
New York Times' 'breaking news' story, see this link.

(c) Angus Cunningham, 100720-130801
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